Part of the reason the fees are so high is because the phones are subsidized. So an iPhone buyer would be paying double whammy, paying for an unsubsidized phone AND paying the same fees as anyone else that has subsidized phones.
There is definitely a lot of truth to that. Subsidies are never 'free', they're simply paid off over the life of the contract.
So, unless you're offered the option of paying less in monthly fees if you supply your own phone/buy one at retail price (and I'm hard-pressed to think of any carrier that does that), your best play is to take advantage of the subsidy, i.e. play the game.
Quote:
Do you have any numbers? I don't know anyone that was that dumb to buy [the RAZR] at anywhere near that price. It was desirable, but a great many more sales happened when it was realistically priced, as it is now. I know the iPhone will sell pretty well, but I'm not following that herd, especially on the leading edge of a 1.0 product.
The RAZR was a huge sales hit for Motorola throughout its entire lifespan, until recently (now that it's stopped being 'cool' to have one/everyone has one/many other phone makers now offer thin phones). It's extremely likely that sales volume was greater once the price came down, but that was offset by the much lower margins RAZRs fetched once they went mass-market:
RAZR margins decline
"Motorola is having a relatively tougher time than other major phone vendors," Gartner Inc. analyst Todd Kort tells Unstrung, "because they are facing difficult comparisons with their performance of the last two or three years, when they were able to achieve substantial market share gains and strong profit growth based on the huge success of their RAZR line.
"Interest in the RAZR remains good," Kort adds, "but profit margins on the RAZR line have substantially declined." Motorola is now charging "a small fraction" of the $500 original price for RAZRs at launch.
Look guys, stop trying to find ways that this phone will be subsidized. Apple said that it wouldn't be. It's about time that you accepted that, and stop trying to find ways around it.
Not all of us are from the US market... in the US there is a concept known as MAP (minimum advertised price) which allows manufacturers to hold retailers accountable to retail prices they manage. In most other "free" markets worldwide (it's an irony the great capitalist economy of the US is not included) it is illegal (under competition laws) for the manufacturer to force the retailer to any price.
Ergo, we may well see this phone subsidized very early after launch, just not perhaps in your backyard.
The whole 'exclusivity/image vs commodization/sales' thing is an interesting subject though. The usual model is 'exclusivity/high margins' early, and 'commodization/mass sales' later. That seems to deliver maximum cha-ching to a companies cash coffers, properly implemented, and no one seems to do it better than Apple in recent years. I would not worry.
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It was the commodification of the RAZR that ruined the brand name. It's just what companies are NOT supposed to do.
Apple tries to avoid that as much as possible. I think they looked at what happened to Moto, and decided that wasn't going to happen here.
People have gotten used to subsidies, but Apple wants then to buy the phone for what it is, not for the discount.
As long as they are not trying to have this phone get a large marketshare, the strategy is fine.
Not all of us are from the US market... in the US there is a concept known as MAP (minimum advertised price) which allows manufacturers to hold retailers accountable to retail prices they manage. In most other "free" markets worldwide (it's an irony the great capitalist economy of the US is not included) it is illegal (under competition laws) for the manufacturer to force the retailer to any price.
Ergo, we may well see this phone subsidized very early after launch, just not perhaps in your backyard.
Actually, manufacturers here can't normally force a retailer to hold a price. It isn't as simple as you make it out to be.
It wouldn't hold for phone companies anyway, because the phone is part of a package. The phone companies can divvy the costs up anyway they choose.
Sadly, I would not want one, even as great a device as it is.
Cingular/ATT's network is a mediocre (on a good day) where I live, and their customer service is legendarily snotty and incompetent. I'll wait 'til it comes to either Verizon or T-mobile... and I don't care if that's a long time. \
I currently have a Treo 650 with Sprint. Their data plan (all you can eat) is only 15 dollars a month if I remeber correctly.
Minutes are minutes regardless of phone so I expect the same price for that plan, but the amount of Internet access is likely to increase with the iPhone.
Anyone can answer: What does the data plan for AT&T/Cingular (all you can eat) cost for a similar (Treo/Blackberry) phone?
If they aren't offering a discount on the phone and aren't offering a discount on plans, I don't think it'll be quite as hot as they think. For sure it'll sell to a select few, but I think if this is the route they're taking, they are going to have trouble breaking into 1% of the market. A company can't charge full price for a phone and not discount the prices that are meant to take care of discounts. People realize that's quite the scam. I, for one, am starting to change my mind about buying one of these. Not because I don't have the money, but because I am not a fool to get completely to the ninth degree ripped off by "some cool, early adopters fee." You have to remember this is apple's first phone. They don't have the proven relability of say someone who has been making phones for quite the while. So, what worked for moto on the RAZR, might not work for Apple on the Iphone.
Look guys, stop trying to find ways that this phone will be subsidized. Apple said that it wouldn't be. It's about time that you accepted that, and stop trying to find ways around it.
But this is where I'm confused. This quote from the report
Quote:
Overall, the analyst said he walked away from the meeting believing that AT&T's revenue share with Apple could be a more meaningful portion of monthly average revenue per user than previously thought. He explained that this is possible given the "significantly better economics" AT&T should realize from iPhone subscribers, given the lower "churn" and cost of adding each user to its network with advertising and branding help from Apple.
indicates there is a 'subsidy' to Apple, its just not paid up front. In the total scheme this is still a subsidy in my thinking.
because EVERYONE has a cell phone. EVERYONE has or wants an iPod.
and people with no money max out credit cards to drop $400 on sunglasses, shoes, purses, etc.
because it will be a status-symbol object. the poor, huddled masses pick up any status symbol they can, no matter how far into debt it puts them. it's the american way.
there is an enormous demographic that doesn't know the difference between 3g, edge, hspda, gsm, cdma, and scsi. they will buy the iPhone because it will be [it is] cool.
for those of us who CAN afford it, work on macs all day long, and don't want to put a phone AND ipod in their pants pocket, it's a no brainer. i'll get an 8gb on day one as long as they're in stock. for those of you who think it's foolish to get a v.1.0 item, i'll get an upgrade in 2 years [or 1].
If they aren't offering a discount on the phone and aren't offering a discount on plans, I don't think it'll be quite as hot as they think. For sure it'll sell to a select few, but I think if this is the route they're taking, they are going to have trouble breaking into 1% of the market. A company can't charge full price for a phone and not discount the prices that are meant to take care of discounts. People realize that's quite the scam. I, for one, am starting to change my mind about buying one of these. Not because I don't have the money, but because I am not a fool to get completely to the ninth degree ripped off by "some cool, early adopters fee." You have to remember this is apple's first phone. They don't have the proven relability of say someone who has been making phones for quite the while. So, what worked for moto on the RAZR, might not work for Apple on the Iphone.
The iPhone will be 2007's Tickle Me Elmo?it will sell like mad owed to cultural values versus what it initially has to offer. So goes marketing.
P.S. Motorola has the highest return, and dissatisfaction rate of any phone brand sold at AT&T.
It was the commodification of the RAZR that ruined the brand name. It's just what companies are NOT supposed to do.
I think that's true to a point. Moto did drop the price too quickly and rode the RAZR marketshare horse too hard. They burned brand for short-term gain, and now its biting them in the arse.
But you do also have to look at the flip-side of it... if Moto hadn't commoditized the thin phone form factor, the Asian phone makers would've done it for them. Heck, even some of the low-end 'free' and near-free phones are thin now.
But, was Moto ahead of the commodization curve, more than they needed to be? Were they milking it? Yeah, they were.
Quote:
Apple tries to avoid that as much as possible. I think they looked at what happened to Moto, and decided that wasn't going to happen here.
People have gotten used to subsidies, but Apple wants then to buy the phone for what it is, not for the discount.
As long as they are not trying to have this phone get a large marketshare, the strategy is fine.
As with the iPod, at some point Apple does start to play the commodization/mass market game. The only question is when and how do they play it.
However they go about it, I have no doubt they'll play the game better than Moto did, and they won't kill the brand. Stevie J is too smart for that.
Perhaps Apple is selling the iPhone at cost. At first this seemed very un-Apple until I recalled a previous AI article where Apple oddly was moving the AppleTV and iPhone to a 2 year subscription model.
"In order to account for the new features, Apple said it will document iPhone and Apple TV income through a subscription based accounting model, in which income will be distributed over a 24-month period. Payments from AT&T/Cingular will be reported on a quarterly basis."
This lack of a subsidization starts to make sense when you consider this new accounting model. Apple isn't just getting AT&T to change their carrier services but are now having to share their subscription profits directly with a manufacturer. Obviously very unorthodox for the cell phone company but it appears Apple is really banking on the long term success of the iPhone.
Assuming this is true and that Apple receives payments from AT&T even after the 24 month contract period is up, it behooves Apple to release many new free software updates and to make the phone's usable life-span as long as possible.
If Apple is changing things up this much and getting in this deep with AT&T, then I think they'd also with their own subscription plans too.
You have to remember this is apple's first phone. They don't have the proven reliability of say someone who has been making phones for quite the while.
That is an unintentional joke. The established phone makers regularly have problems with reliability, both in hardware and software, with Motorola being probably the worst offender of all.
Sadly, consumers seem to accept this a lot more than they should, probably because subsidies keep the 'apparent' cost of the phone low, and because they figure they're getting a new phone in a relatively short amount of time anyway.
Apple actually has an opportunity here to school the established phone makers in reliability, if the iPhone has fairly few teething problems.
Pardon me if I was in another solar system or something, but when Monkey Boy Ballmer was out there in January bloviating about this being the most expensive subsidized phone, he was wrong on both counts.
AT&T never said they'd discount or subsidize iPhone. They don't have the ability according to the deal with Apple. Jim Cramer wrote about the possibilty months ago that AT&T would use its own clout to drive a nail into Verizon et al. by discounting from their end. That's what's intended to change the market. They just don't discount service fees today in order to close competitors' contracts and grow their numbers.
Dunno about anyone else, but that makes great sense to me, and it's how everyone else outside the U.S. markets is doing it now. In Australia, for instance, you pay full fare for the hardware -- which may or may not be sold by the carrier -- and then you pay a much lower monthly rate.
It definitely makes more economic sense from a consumer point-of-view to pay up front for the hardware rather than, in effect, taking out a loan over the contract period. I'm just afraid that's not how Americans like to do things in general, and especially in the cell phone market.
Comments
Part of the reason the fees are so high is because the phones are subsidized. So an iPhone buyer would be paying double whammy, paying for an unsubsidized phone AND paying the same fees as anyone else that has subsidized phones.
There is definitely a lot of truth to that. Subsidies are never 'free', they're simply paid off over the life of the contract.
So, unless you're offered the option of paying less in monthly fees if you supply your own phone/buy one at retail price (and I'm hard-pressed to think of any carrier that does that), your best play is to take advantage of the subsidy, i.e. play the game.
Do you have any numbers? I don't know anyone that was that dumb to buy [the RAZR] at anywhere near that price. It was desirable, but a great many more sales happened when it was realistically priced, as it is now. I know the iPhone will sell pretty well, but I'm not following that herd, especially on the leading edge of a 1.0 product.
The RAZR was a huge sales hit for Motorola throughout its entire lifespan, until recently (now that it's stopped being 'cool' to have one/everyone has one/many other phone makers now offer thin phones). It's extremely likely that sales volume was greater once the price came down, but that was offset by the much lower margins RAZRs fetched once they went mass-market:
RAZR margins decline
"Motorola is having a relatively tougher time than other major phone vendors," Gartner Inc. analyst Todd Kort tells Unstrung, "because they are facing difficult comparisons with their performance of the last two or three years, when they were able to achieve substantial market share gains and strong profit growth based on the huge success of their RAZR line.
"Interest in the RAZR remains good," Kort adds, "but profit margins on the RAZR line have substantially declined." Motorola is now charging "a small fraction" of the $500 original price for RAZRs at launch.
http://www.unstrung.com/document.asp?doc_id=114953 (01/07)
.
I see some of the geniuses are out already.
Look guys, stop trying to find ways that this phone will be subsidized. Apple said that it wouldn't be. It's about time that you accepted that, and stop trying to find ways around it.
Not all of us are from the US market... in the US there is a concept known as MAP (minimum advertised price) which allows manufacturers to hold retailers accountable to retail prices they manage. In most other "free" markets worldwide (it's an irony the great capitalist economy of the US is not included) it is illegal (under competition laws) for the manufacturer to force the retailer to any price.
Ergo, we may well see this phone subsidized very early after launch, just not perhaps in your backyard.
The whole 'exclusivity/image vs commodization/sales' thing is an interesting subject though. The usual model is 'exclusivity/high margins' early, and 'commodization/mass sales' later. That seems to deliver maximum cha-ching to a companies cash coffers, properly implemented, and no one seems to do it better than Apple in recent years. I would not worry.
.
It was the commodification of the RAZR that ruined the brand name. It's just what companies are NOT supposed to do.
Apple tries to avoid that as much as possible. I think they looked at what happened to Moto, and decided that wasn't going to happen here.
People have gotten used to subsidies, but Apple wants then to buy the phone for what it is, not for the discount.
As long as they are not trying to have this phone get a large marketshare, the strategy is fine.
Subsidies are never 'free', they're simply paid off over the life of the contract.
Bingo! You win a free iPhone!
Not all of us are from the US market... in the US there is a concept known as MAP (minimum advertised price) which allows manufacturers to hold retailers accountable to retail prices they manage. In most other "free" markets worldwide (it's an irony the great capitalist economy of the US is not included) it is illegal (under competition laws) for the manufacturer to force the retailer to any price.
Ergo, we may well see this phone subsidized very early after launch, just not perhaps in your backyard.
Actually, manufacturers here can't normally force a retailer to hold a price. It isn't as simple as you make it out to be.
It wouldn't hold for phone companies anyway, because the phone is part of a package. The phone companies can divvy the costs up anyway they choose.
Bingo! You win a free iPhone!
Sadly, I would not want one, even as great a device as it is.
Cingular/ATT's network is a mediocre (on a good day) where I live, and their customer service is legendarily snotty and incompetent. I'll wait 'til it comes to either Verizon or T-mobile... and I don't care if that's a long time.
.
Minutes are minutes regardless of phone so I expect the same price for that plan, but the amount of Internet access is likely to increase with the iPhone.
Anyone can answer: What does the data plan for AT&T/Cingular (all you can eat) cost for a similar (Treo/Blackberry) phone?
Cingular/ATT's network is a mediocre (on a good day) where I live, and their customer service is legendarily snotty and incompetent.
Believe me I know all about what you are saying regarding AT&T...in more ways than one.
I see some of the geniuses are out already.
Look guys, stop trying to find ways that this phone will be subsidized. Apple said that it wouldn't be. It's about time that you accepted that, and stop trying to find ways around it.
But this is where I'm confused. This quote from the report
Overall, the analyst said he walked away from the meeting believing that AT&T's revenue share with Apple could be a more meaningful portion of monthly average revenue per user than previously thought. He explained that this is possible given the "significantly better economics" AT&T should realize from iPhone subscribers, given the lower "churn" and cost of adding each user to its network with advertising and branding help from Apple.
indicates there is a 'subsidy' to Apple, its just not paid up front. In the total scheme this is still a subsidy in my thinking.
why?
because EVERYONE has a cell phone. EVERYONE has or wants an iPod.
and people with no money max out credit cards to drop $400 on sunglasses, shoes, purses, etc.
because it will be a status-symbol object. the poor, huddled masses pick up any status symbol they can, no matter how far into debt it puts them. it's the american way.
there is an enormous demographic that doesn't know the difference between 3g, edge, hspda, gsm, cdma, and scsi. they will buy the iPhone because it will be [it is] cool.
for those of us who CAN afford it, work on macs all day long, and don't want to put a phone AND ipod in their pants pocket, it's a no brainer. i'll get an 8gb on day one as long as they're in stock. for those of you who think it's foolish to get a v.1.0 item, i'll get an upgrade in 2 years [or 1].
If they aren't offering a discount on the phone and aren't offering a discount on plans, I don't think it'll be quite as hot as they think. For sure it'll sell to a select few, but I think if this is the route they're taking, they are going to have trouble breaking into 1% of the market. A company can't charge full price for a phone and not discount the prices that are meant to take care of discounts. People realize that's quite the scam. I, for one, am starting to change my mind about buying one of these. Not because I don't have the money, but because I am not a fool to get completely to the ninth degree ripped off by "some cool, early adopters fee." You have to remember this is apple's first phone. They don't have the proven relability of say someone who has been making phones for quite the while. So, what worked for moto on the RAZR, might not work for Apple on the Iphone.
The iPhone will be 2007's Tickle Me Elmo?it will sell like mad owed to cultural values versus what it initially has to offer. So goes marketing.
P.S. Motorola has the highest return, and dissatisfaction rate of any phone brand sold at AT&T.
It was the commodification of the RAZR that ruined the brand name. It's just what companies are NOT supposed to do.
I think that's true to a point. Moto did drop the price too quickly and rode the RAZR marketshare horse too hard. They burned brand for short-term gain, and now its biting them in the arse.
But you do also have to look at the flip-side of it... if Moto hadn't commoditized the thin phone form factor, the Asian phone makers would've done it for them. Heck, even some of the low-end 'free' and near-free phones are thin now.
But, was Moto ahead of the commodization curve, more than they needed to be? Were they milking it? Yeah, they were.
Apple tries to avoid that as much as possible. I think they looked at what happened to Moto, and decided that wasn't going to happen here.
People have gotten used to subsidies, but Apple wants then to buy the phone for what it is, not for the discount.
As long as they are not trying to have this phone get a large marketshare, the strategy is fine.
As with the iPod, at some point Apple does start to play the commodization/mass market game. The only question is when and how do they play it.
However they go about it, I have no doubt they'll play the game better than Moto did, and they won't kill the brand. Stevie J is too smart for that.
.
So?
Just calling it for what it is, that's all.
Assuming this is true and that Apple receives payments from AT&T even after the 24 month contract period is up, it behooves Apple to release many new free software updates and to make the phone's usable life-span as long as possible.
If Apple is changing things up this much and getting in this deep with AT&T, then I think they'd also with their own subscription plans too.
The iPhone will be 2007's Tickle Me Elmo?it will sell like mad owed to cultural values versus what it initially has to offer. So goes marketing.
P.S. Motorola has the highest return, and dissatisfaction rate of any phone brand sold at AT&T.
I think there's a sweet spot in price when it comes to hot items. This isn't hitting it.
And I knew that about moto. But they've made more cellphones than apple. Even knowing your fact, I would still trust them more.
And I knew that about moto. But they've made more cellphones than apple. Even knowing your fact, I would still trust them more.
I understand perfectly. I loved Motorola for years, still look at them hoping they will change for the better, and will buy one again should they.
You have to remember this is apple's first phone. They don't have the proven reliability of say someone who has been making phones for quite the while.
That is an unintentional joke. The established phone makers regularly have problems with reliability, both in hardware and software, with Motorola being probably the worst offender of all.
Sadly, consumers seem to accept this a lot more than they should, probably because subsidies keep the 'apparent' cost of the phone low, and because they figure they're getting a new phone in a relatively short amount of time anyway.
Apple actually has an opportunity here to school the established phone makers in reliability, if the iPhone has fairly few teething problems.
.
AT&T never said they'd discount or subsidize iPhone. They don't have the ability according to the deal with Apple. Jim Cramer wrote about the possibilty months ago that AT&T would use its own clout to drive a nail into Verizon et al. by discounting from their end. That's what's intended to change the market. They just don't discount service fees today in order to close competitors' contracts and grow their numbers.
Dunno about anyone else, but that makes great sense to me, and it's how everyone else outside the U.S. markets is doing it now. In Australia, for instance, you pay full fare for the hardware -- which may or may not be sold by the carrier -- and then you pay a much lower monthly rate.